DEFINITION of ‘Chart Of Accounts’
A listing of each account a company owns, along with the account type and account balance, shown in the order the accounts appear in the company’s financial statements. “Chart of accounts” is the official accounting term for the display of this information, which includes both balance-sheet accounts and income-statement accounts. The chart of accounts shows assets, liabilities, equity, revenues and expenses, all in one place and broken down into subcategories. Each chart in the list is assigned a multi-digit number to help identify the account type (e.g. all asset accounts might start with the number 1).
BREAKING DOWN ‘Chart Of Accounts’
For a small corporation, the chart of accounts might include a checking account, savings account, petty cash balance, accounts receivable, undeposited funds, inventory assets, prepaid insurance, vehicles, buildings, stockholders’ equity, the company credit card, accounts payable, payroll liabilities and more. Even a small company could have dozens of accounts in its chart of accounts. The larger and more complex the company, the larger and more complex the chart of accounts will be, but accounting software makes it easy to categorize accounting entries correctly and maintain an accurate and organized chart of accounts.
Reporting requirements can affect how a company structures its chart of accounts, but it is important to keep the chart of accounts the same from year to year to make accurate comparisons of the company’s finances across time.
Here is a way to think about the chart of accounts as it relates to your own finances that might help you better understand how it relates to a business. Say you have a checking account, a savings account and a certificate of deposit (CD) at the same bank. When you log in to your account online, you’ll typically go to an overview page that shows the balance in each account. Similarly, if you use an online program that helps you manage all your accounts in one place, like Mint or Personal Capital, what you’re looking at is basically the same thing as a company’s chart of accounts. You can see all your assets and liabilities, like your checking account, savings account, certificates of deposit, credit card accounts, student loans, auto loans and anything else, all on one page.